Monday, December 31, 2012

by Ashlea Ebeling, Forbes StaffAfter growing up in the 1960s in Charles City, Iowa, a rural county seat known for its tornadoes and tractor factory (now a vacant site), brothers Charley and Pete Thomson were happy to move on. “When I was 20 I couldn’t wait to get out of there,” admits Pete, 56, who runs his own TV and radio ad sales outfit in Denton, Tex.

Now, however, the brothers are betting on a comeback for Charles City, whose population has slipped below 8,000, from 10,000-plus in its 1950s heyday. In June they formed a limited liability company to buy a portfolio of local properties from a widow and her late husband’s estate. They’re now the proud owners of two Main Street retail storefronts with loft apartments, two multifamily properties, two single-family rentals, a storage facility/office complex and a vacant lot at 123 Main Street, where their dad used to run a Ben Franklin five-and-dime store and where they hope to build a $10 million mixed-use affordable housing/retail project. The price tag for all that property: just shy of $750,000, with no money down. (More on how they pulled that off later.)

To hear the brothers tell it, the deal represents a dollop of midlife nostalgia atop compelling economics–Iowa’s unemployment rate is only 5.2%, and the farm economy is booming. “We view Charles City and rural Iowa as an extraordinarily good investment right now,” says Charley, 52, who telecommutes part-time from Charles City to his job as a lawyer at DoALL Co. in Wheeling, Ill. Residents don’t have to contend with “big city prices or problems” but might reasonably go to Chicago or Minneapolis every week or so for entertainment, he says. “At 50,” muses Pete, “you start to think about what’s really important to you. Having a chance to work with my brother and make contributions to a town that I truly love is huge.”

Few boomers can go home again to buy up Main Street. But direct ownership of commercial real estate is making a comeback, and rightly so. Historically low interest rates, combined with real estate prices still depressed from the real estate bust and Great Recession, make this a smart time to buy.

Can direct ownership be risky and a hassle? Yep. “When I first recommend it to a lot of people, they go white,” says Pat Carroll, a financial planner in Rockville, Md. But, he adds, everyone needs real estate in an investment portfolio, and “the way to buy with the most potential is individual ownership.”

If you’re the queasy or hands-off type, stick to publicly traded REITs. Or, if you’re an accredited investor (meaning you’ve got more than $1 million in net worth outside your home or an income of at least $200,000) and are willing to take on more risk, consider limited partnerships put together by real estate developers. If you’re even wealthier (with at least $5 million to put into direct ownership) and don’t flinch at management fees, you can also delegate the work to the likes ofBank of America‘s U.S. Trust unit, which manages about $3 billion in commercial real estate for ultra-high-net-worth clients, for an annual fee of 1% to 1.45% of the properties’ market value. A team there scours the U.S. for promising properties to buy and secures third-party property managers for those properties, which are held in individual clients’ separate accounts.

“People are looking for real assets that offset the volatility in the stock market, and they’re looking for yield as well as capital appreciation,” says Dennis Moon, head of the U.S. Trust unit. “It’s real dirt,” he adds. Want some of your own dirt? Start with these pointers.

THINK LONG TERM

Moon advises clients to be prepared to hold properties a minimum of ten years. Lots of folks who bought investment real estate at the last peak are substantially underwater now, just as those who bought homes right before the fall are. But a dip in value is not necessarily a disaster if rents generate enough cash to cover expenses–taxes, insurance, repairs, and monthly principal and interest payments on any debt. The Thomsons’ properties bring in $13,000 to $15,000 a month in rent, making them cash-flow positive.

DO DEEP DILIGENCE

“Would you be shocked that sellers don’t disclose everything?” asks Gary Grabel, author of Wealth Opportunities in Commercial Real Estate (Wiley, 2011). As a corporate lawyer Charley Thomson did extensive due diligence–”Probably overkill,” he says–on the Charles City deal. For example, he took raw numbers and reconstructed profit-and-loss statements on each building and then had his accountant double-check his numbers. Even though the properties were 100% occupied, he knew to factor in vacancy rates.

Obviously you’ll need to get physical elements, like the roof and heating-and-cooling system, inspected. But first-time buyers sometimes miss hidden defects that may not be physical.

Example: A friend of Grabel’s bought a strip shopping center near Cal State, Northridge, with plans to lease to a frozen yogurt store to boost traffic. What he overlooked before buying is that the center didn’t (according to local rules) have enough parking spots for such a high-traffic tenant. Grabel helped him finesse the issue; he increased the spots by re-striping part of the lot for smaller compact cars and added valet parking during peak hours. (Look for Grabel’s free nine-page due diligence checklist atwiley.com/go/wealthopportunities.)

USE LEVERAGE CAREFULLY

Moon likes all-cash deals. He’s now working with a client worth $200 million who plans to invest $5 million of cash into multifamily residential and warehouse properties. With no debt to service, they should throw off income of 8% a year–before U.S. Trust’s fee.

More typically, however, investors are now putting 20% to 40% down–and finding that’s enough to secure fairly attractive loan terms from a bank. When comparing commercial loans, look at more than the rate. Is the loan nonrecourse–meaning secured only by the property and not by your other assets? If it’s a recourse loan, what, if any, are the limitations on your liability? Spring for a good real estate lawyer who can compare and explain such arcane features as “defeasance” penalties.

So how did the Thomsons do a deal with no money down? They knew the elderly seller, who assumed a little under half of the debt at 5% interest–more than she’d earn on investment grade bonds or CDs but a good deal for the Thomsons. The rest they borrowed at 6% interest from First Security Bank & Trust, where their family has banked for nearly 100 years. The bank holds the first lien.

PICK AN OWNERSHIP FORM

The Thomsons set up their partnership as a limited liability company, which is often the best way to hold real property. That gives them leeway should they want to bring in another partner and helps protect their personal assets should there be a freak accident and large liability judgment levied against a property.

An LLC also makes estate planning easier. You can give membership interests in the LLC equal to the annual gift tax exclusion–you can give away $13,000 per individual this year and $14,000 in 2013 without eating into your lifetime estate and gift tax exemption.

But watch out: Depending on where the property is situated, transferring LLC interests can sometimes trigger state and local transfer and recording taxes.

That’s one reason owning property directly (or through a family trust) and carrying a big umbrella liability insurance policy can be a better approach for small real estate investors, says Matthew Alegi, a real estate lawyer in Potomac, Md. Another is the added cost and complexity of operating through an LLC. For example, the LLC needs its own bank account, and if you accept a rent check written out to you instead of the LLC, the liability protection can be destroyed.

DECIDE ON MANAGEMENT

Before you put your money down, decide how much work you’re ready to do and how much you’ll farm out. Will you find tenants and take their frantic calls if a boiler dies or roof leaks? If you’d rather leave the grunt work to a paid manager, figure the expense into your cash flow projections. The Thomsons hired a part-time employee as manager, but Charley gets copied on all tenant queries. “In a small town, people know who owns what,” he observes.

Be practical. What’s your time worth? Financial planner Carroll and his wife own six single-family rentals. They manage the ones near them in theWashington, D.C. suburbs but pay a property manager to deal with homes several hours away inBlacksburg and Harrisonburg, Va. Minimize hassles. Keep the rent slightly under market rates so you’ll have your pick of good long-term tenants. If tenants aren’t paying, rather than going through the time and expense of eviction, cut your losses by letting them out of their lease and forgiving their back rent if they clear out right away, suggests Carroll.

LEARN THE TAX ANGLES

The days when ordinary folks could use commercial real estate as a tax shelter are long gone, ended by the tax reform act of 1986. If you’re a doctor or lawyer your real estate investments are considered a “passive activity”–meaning losses from them generally can’t be netted against your wage income. (The exception: Taxpayers with adjusted gross income below $100,000 can deduct up to $25,000 in rental losses. That break is phased out and eliminated completely when AGI hits $150,000.)

If you’re buying property now, you’ll want to figure into your projections the possibility of taxes rising, warns Alegi. On the other hand, you might be able to get a deal before year’s end as sellers race to beata feared increase in the capital gains rate from 15% to 25%.

Even if you’ve always been a TurboTax devotee, budget for the cost of a tax advisor/preparer, particularly at the start. There are still some tax benefits attached to owning real property, but most of them aren’t of the do-it-yourself variety. (Example: A 1031 exchange will let you defer gains tax on the sale of a property if you buy another within 180 days. But you must do the exchange using a “qualified intermediary.”)

GRAB GOVERNMENT GIMMES

The Thomson brothers have big plans for their Main Street holdings, but they can’t pay for them alone. Charles City has a $500,000 federal community-development block grant for downtown facade improvements that they can tap to pay for 80% of the cost of face-lifts for two of their Main Street storefronts. The new building at 123 Main, the site of their dad’s old five-and-dime? The brothers are looking to the city for tax increment financing–meaning a loan that they will pay back through property taxes. Almost every state offers some version of this sort of help. Also available: federal and state tax credits for renovating historic properties. Just be prepared to spend time and professional fees snagging the credits. Owning real estate directly can be lucrative–for you and your advisors.

The building is being used to consolidate two Airgas Safety locations in the Keystone Industrial Park. The company has its Northeast telesales, administration and distribution center operations in the building and employ about 210 people there.

Wednesday, December 26, 2012

Kilroy Realty Corp., a Los Angeles-based commercial real estate investment firm, acquired a fully entitled 12-acre site in Sunnyvale, CA, which will be the future home of LinkedIn Corp. JP DiNapoli Cos. was the seller.

Kilroy will develop, own and manage the four-building project, which is expected to be completed in late 2014. The sales price of $315 million included development costs.

The new LinkedIn campus will consist of two six-story office structures, each measuring 212,322 square feet; a 156,765-square-foot, five-story office building; and a 6,000-square-foot amenities building. LinkedIn preleased the buildings for a 12-year term. www.omegare.com

The company said in a statement that it continues to look for industrial properties in targeted industrial markets and will spend another $18 million on buying industrial buildings by the end of the year.

Friday, December 21, 2012

World Kitchen signed a full-building lease renewal to continue occupying the entirety of 1200 South Antrim Way, a 1.03-million-square-foot warehouse and distribution facility in Greencastle, PA.

Matrix Development Group, the building landlord, will undertake an extensive capital improvement program - in excess of $10 million - to modernize the facility for World Kitchen, a Rosemont, IL-based kitchenware provider.

The renovations will include 20,000 square feet of new corporate office space, replacement of HVAC systems throughout the facility, the incorporation of an ESFR sprinkler system, new roofing, additional truck docks and a new building envelope consisting of pre-cast concrete and metal panels. Site work will include the expansion of trailer parking by more than 150 stalls and the allocation of land to accommodate 230,000 square feet of future expansion.

Situated on 70 acres, 1200 South Antrim Way, which benefits from being within Foreign Trade Zone 147, is less than a quarter-mile from the planned Norfolk Southern Intermodal Freight Transport Facility and is less than one mile from Exit 3 off Interstate 81. An additional 64 acres is available for future development. The single-story warehouse building was constructed in 1960 in the Harrisburg Area West Industrial submarket of Franklin County. www.omegare.com

Core Realty Inc. will begin construction early next year on the first phase of an overall $600 million development that looks to transform an eight-block swath of North Delaware Avenue into an urban entertainment district called Penn Treaty Village.

Core Realty will convert the former 160,000-square-foot Ajax Metal and another 14,000-square-foot structure, which will be expanded by 6,000 square feet, for the initial phase of the mixed-use project. A distillery, 18-lane bowling alley, Live Nation concert venue, country-western bar, sports theater and an Italian restaurant are among the uses that will go into the two buildings.

If all goes as planned, construction will be completed in the fall and the initial phase of Penn Treaty will open in spring 2014. It sits across from the SugarHouse Casino.

Around the same time, Core Realty will begin to seek approvals for the second phase of Penn Treaty, which will take place along the 900 block of Delaware Avenue. Anchor tenants for that phase will be include an Imax movie theater, fitness facilities, restaurants and retail along the first floor of a 126-unit apartment complex in a converted warehouse called the Pennthouse. Core Realty started work a month ago on converting another warehouse next to the Pennthouse that will have 100 apartments.

Financing for the project is not an issue, said Randall A. Mineo, executive vice president with Core Realty.

Penn Treaty will join just a few other large-scale developments along the Delaware River waterfront including SugarHouse and Waterfront Square.

“This fits very well with our plan for the waterfront,” said Tom Corcoran, president of theDelaware River Waterfront Corp. “We call that area the Uplands to distinguish it from the area along the river. It’s now a hodgepodge of different uses, low-level uses and vacant lots, and we hoped to see it developed into a high-quality destination.”

BioMed Realty Trust is exploring constructing almost 900,000 square feet of new office and lab space here that would involve razing several existing structures it owns off of King of Prussia Road.

The San Diego real estate investment trust is in the early stages and has approached township officials with its plans. As it stands now, BioMed would tear down two existing buildings it owns at 145 King of Prussia Road and construct 300,300 square feet in a single building as well as a parking garage. Another phase would involve knocking down two more buildings and constructing two new structures, one totaling 280,000 square feet and another 294,000 square feet. In addition, it would expand the parking structure that was built in the first phase.

The 19-acre campus BioMed Realty owns on King of Prussia Road consists of five buildings with 374,387 square feet of lab, office and warehouse space the were constructed between 1952 and 1982, and renovated in 2004. It is fully leased to Janssen Biotech Inc., a company owned by Johnson & Johnson.

Thursday, December 20, 2012

Winthrop Realty Trust acquired a non-performing first mortgage loan secured by a 20-story, 514,000-square-foot office building at 1515 Market St. in Philadelphia.

The loan, which is currently in maturity default, has an outstanding balance, exclusive of interest, default interest and late charges, of $70 million and was acquired for $56.85 million ($111/SF).

The loan was held in a commercial mortgage backed securities (JPM 2007-LDP10).

The building last sold for $76 million ($148/SF) in January 2007 to Stockton Real Estate Advisors. The property has 110,673 square feet available for lease at an average asking rent of $25.19/SF/year. www.omegare.com

BLDG Management Co, Inc. sold the 1,015-unit Presidential City apartment complex to Post Commercial Real Estate LLC for $51 million, or about $52,000 per unit. The seller is retaining the ground lease for the property.

Located at 3800-3900 City Ave. in Philadelphia, PA, the 12-story high rise apartment complex contains 30 commercial spaces and a restaurant in addition to 987 multifamily units. The Presidential City apartments sit on more than 20 acres, contains health and fitness centers, along with laundry facilities in each building, and has a 24-hour gatehouse entrance.www.omegare.com

Resource America, Inc. has leased 28,930 square feet on the 10th floor at 1845 Walnut St. in Philadelphia, PA. The ten-year deal commences in the summer of 2013.

RAI is a specialized asset management company utilizing industry-specific expertise to generate and administer investment opportunities for its own account and outside investors in the real estate, commercial finance and financial fund management sectors.

1845 Walnut is a 347,900-square-foot, 25-story, class A office tower built in 1968 on eight-tenths of an acre in the Market Street West submarket of Philadelphia. www.omegare.com

December typically sees a rush among investors to close property sales transactions by year-end. But this year, the wave of property sales has been much larger than usual, with an inordinately high number of deals closing since the national elections in early November.

CoStar Group has processed 2,040 more property sale transactions in the five weeks since the election than in the same period last year - 8,365 vs. 6,325 -- with half of that additional volume occurring in the past two weeks.

And just as the uncertainty over the election outcomes stalled dealmaking in the months leading up to decision day, the uncertainty over the pending cessation of tax cuts has many dealmakers scrambling to cover their gains in case their deals get hit with a higher tax rate. "Investors I've spoken with were either caught flat-footed, believing the Romney was going to be elected, or believed they could, via 1031 exchanges, escape the prospect of increased capital gain taxes," said John Mendoza, an agent with New GrowthCommercial Real Estate Co. in Las Vegas. "However, there was certainly a fair percentage of those investors, about 25% -35%, who positioned themselves to sell before year’s end to avoid the prospect of higher capital gain taxes."

"I’ve been working 24/7 for the past three months, compared to working at 50% capacity for the preceding two-and-a-half years," said Clay Rodgers, president of Rodgers Appraisal in Winter Park, FL. "My business usually slows down in an election year, but this year it was the opposite."

"I'm receiving last minute appraisal requests for pending sales which must close by 12/31, and the motivation is to get the property sold in 2012 to avoid increased capital gains. Property type or size does not seem to matter, I’m seeing this with a wide variety of property types and sizes," Rodgers added.

Ron Floyd, vice president, real estate valuation and environmental risk manager for USAmeriBank in Clearwater, FL, said appraisers are quoting them 20 to 30 day business day turnarounds on appraisal requests; double the normal turnaround time of 10 to 15 days.

"Small flex is flying off the shelves in suburban Philadelphia/West Chester, PA," said David A. Partridge with Lieberman Earley & Co. in Wayne, PA. "Current demand is very high with limited inventory. My seller insists that the deal get done in 2012 in advance of expected capital gains tax increases."

Mike Greiner, an associate with National Multi Housing Group of Marcus & Millichap in San Diego, said, even if sellers aren't soley motivated to liquidate ahead of tax rate increases, it is almost always a motivating factor in the sales timelines.

Walter Page, director of office research for CoStar Group’s PPR Global, said: “The year-end rush to do deals due to the potential for increasing tax rates has been the motive for a lot of taxable investment deals in the second half of 2012. Most likely this rush is focused on lower value property sales because the high value sales are often done in tax-protected programs, such as for retirement funds.”

However, if Tyler Boyd, market research analyst for Voit Real Estate Services in Roseville, CA, is right, we can expect the 'year-end rush' to continue into 2013.

“We are actually seeing a significant increase of buyer activity,” Boyd said. “Oddly, this contradicts the logic of the seller’s being motivated to dispose before the end of the year to avoid a tax increase. However, this probably has very little to do with the Fiscal Cliff and more to do with the election one month ago. As anticipated by the CRE community, regardless of who won the election, investor certainty has solidified. Investors now know what to expect going forward. With buyer activity mounting, it goes to show that the money was there all along-just hidden in heavy vaults, which now appears to be opening slowly.” www.omegare.com

Tuesday, December 18, 2012

Teva Pharmaceuticals Ltd. said Monday that it had halted plans to build a $300 million facility on a former brownfield site on Red Lion Road in Northeast Philadelphia.

Distribution, warehousing, and data functions were planned for 1.1 million square feet of space in three connected buildings. Two hundred jobs were to be moved from existing Teva facilities, 200 new ones were planned, and thousands of temporary construction jobs would have been created.

"Teva recently announced that it would be reassessing its global network footprint," a spokeswoman said in a statement. "As such, we have made the decision to cease development plans for the proposed distribution center on Red Lion Road in Philadelphia. At this time we cannot elaborate further about plans for this property. Road improvements as committed along Red Lion Road continue and are scheduled to be completed in the spring. Teva remains committed to maintaining the property and working with local government."

Teva is based in Israel; the company's Americas headquarters is in North Wales, Montgomery County; and it has a manufacturing facility in Sellersville, Bucks County.

On Sept. 27, 2011, company officials and local politicians gathered with smiles on their faces and ceremonial shovels in their hands to break ground on the Bustleton site, which had been used for decades by the Budd Co. to produce railroad cars.

"Not only are we celebrating the commencement of the new building, but starting today, Teva will be an official member of the city of Philadelphia," Teva Americas chief executive officer and president Bill Marth said at the event.

But a lot has changed with Teva since then, including Marth's departure from that role and, soon afterward, the company. Shlomo Yanai, who approved the land purchase along with the board of directors, resigned as chief executive officer on Jan. 1 and was replaced by Jeremy Levin on May 9.

Teva is the world's leading seller of generic drugs, but with almost 80 percent of Americans now using generic medication amid greater competition, Teva has struggled to increase profits.

The company's stock price was $63 per share in March 2010 but closed Monday at $38.39, 99 cents above its 52-week low.

In May, Levin was asked at a Bernstein Research investment conference about the company's facilities and said in part, "My question to the organization was, we've got 74 facilities. How many do we need? Where should they be located? What are the core facilities that you need?"

On Nov. 30, Levin said the company would cut from $1.5 billion to $2.0 billion in costs over the next five years, but he was criticized by some stock analysts for not being specific about the nature of the cuts and how soon they would translate into better profits.

Teva's Sellersville factory had job cuts and work shifted elsewhere in 2010.

"Over the years, I worked closely with Philadelphia officials and state leaders to encourage Teva to build a distribution center in Northeast Philadelphia. This is a disappointing corporate decision, and a loss for economic growth for the city and the region," U.S. Rep. Allyson Y. Schwartz, whose district includes the Bustleton area, said in a statement.

"As we move forward, I stand ready to work with the local community and the city to ensure that a new use for the site can be found that both carries the support of the local community and can benefit the people and economy of Southeastern Pennsylvania."

Mayor Nutter said at the 2011 ceremony that the project was "the biggest economic development project of our administration, and we could not be more excited."

Deputy Mayor Alan Greenberger said Monday evening that Nutter had spoken with Teva officials after reading their statement and preferred to view the company's decision as a "pause" in its plans, allowing for possible resumption.

"They are continuing to maintain the property and do the road improvements on Red Lion Road," Greenberger said. "But they indicated to the mayor that they won't go ahead right now with this project while they go about their businesswide reassessment."Full story: http://tinyurl.com/bsvc6ml

Monday, December 17, 2012

BET Investments Inc. closed this week on two apartment properties and has now spent more than $80 million since September bolstering its multifamily holdings throughout the region.

The private company isn’t done, either. BET plans to spend between $100 million and $150 million buying apartment properties annually for the next three or four years. Its goal is to acquire up to 1,000 rental units a year.

“We want to buy a lot more and we’re focusing on Philadelphia,” said Bruce E. Toll, who runs BET with Michael P. Markman, who is president of the company.

The two properties BET just bought were Newtown Place in Newtown, Bucks County, and Wynmere Chase in Horsham, Montgomery County. Newtown Place off Cambridge Lane was constructed in 1987 and has 150 garden-style apartments. Wynmere Chase off Bridle Lane was constructed in 1987 and has 80 apartments. The Quaker Group of Voorhees, N.J., sold the properties for $25 million.

On a tear, BET bought in September the 247-unit Chesterfield apartments at 1338 Veterans Highway in Levittown for about $25 million. The property was 96 percent occupied. In October, it dropped another $29.8 million to buy Curren Terrace in Norristown. Curren Terrace has 318 units at 1011 New Hope St. It is 97 percent occupied. BET intends to build additional units, a clubhouse and pool at Curren Terrace and at Newtown Place. It bought those two complexes from Home Properties Inc.

In all, BET’s apartment portfolio totals 1,171 units.

Bruce Toll started Toll Brothers Inc. with his brother Robert and reduced his day-to-day duties at the homebuilding company in 1998 to focus on his own ventures. BET has bought office buildings, shopping centers and industrial properties and last year started adding apartments.

The company’s timing to load up on apartments has been buoyed by more multifamily properties hitting the market. While many multifamily owners tend to hold onto their properties, the increasingly hot apartment market has motivated more owners to sell. BET will look at B-minus properties but focus on what it deems as B-plus apartments, which it believes tend to have consistent demand throughout economic cycles. While BET is on the hunt to buy, it will also consider constructing a new apartment community though it would focus on building Class A properties. Last year, it completed Dublin Terrace, a $50 million apartment community at 2034 S. Limekiln Pike in Dresher. It is an active adult community, it has 192 apartments in 12 buildings and a 4,000-square-foot clubhouse. The barriers to constructing new apartment communities have somewhat been reduced and communities have begun to approve more multifamily developments.

Thursday, December 13, 2012

The iroko tree is somewhat like Osagie Imasogie: native to West Africa, strong and sturdy, with deep roots.

Imasogie invoked all of that Wednesday as he and other leaders from Iroko Pharmaceuticals L.L.C. cut the ribbon on their new office at the Philadelphia Navy Yard.

The five-year-old drug company has 60 employees and plans for 180 in the next couple of years. Imasogie, chairman of the board, and chief executive officer John Vavricka said the growth stems from the private company's sales of pain medicine in 48 countries and the hope of selling more in the United States. (They declined to disclose exact revenue figures.) Iroko intends to submit paperwork with the U.S. Food and Drug Administration later this month.

Iroko, which moved from an older Navy Yard building, is leasing the 56,412-square-foot, four-story building from Liberty Property Trust and Synterra Partners, with help from Philadelphia Industrial Development Corp.

With the hope of certifying the building as a "gold standard" Leadership in Energy and Environmental Design facility, its north and east faces are glass to help bring in natural light. Based on employee surveys, the company put in a gym available at any hour, a lactation room, and a cafeteria with subsidized lunches. The hope is that employees will stay and produce more.

"I love this space," Imasogie told the gathering, referring to the Navy Yard, but also the new digs. "We even have two aircraft carriers."

The new Tastykake office and GlaxoSmithKline's soon-to-open facility are about 100 yards away. As Imasogie, Vavricka, and Mayor Nutter cut the ceremonial ribbon, a generator buzzed directly across the street, where workers were building a Courtyard by Marriott hotel.

Nutter said after the ceremony that the Navy Yard business development, with now more than 10,000 workers on the site, has "serious momentum" and is a "spectacular performer for the city."

Though it has immediate access to I-95, the Navy Yard still lacks a subway stop. SEPTA'S Broad Street Orange line ends at AT&T station at Pattison Street, so Navy Yard workers must drive, take shuttle buses from the subway, or walk. A 2010 study suggested a subway extension would cost $370 million.

"As the business presence increases here at the Navy Yard, that is one serious option we have to look at," Nutter said. "But we know that tunneling is very expensive, and we would only be able to do that with significant federal support."

Imasogie's "roots" took another form Wednesday. He wore his London School of Economics cuff links to the event, but he also earned a law degree from the University of Pennsylvania and now serves on Penn's board of trustees. Iroko announced it will sponsor scholarships to Penn for two graduates of a Philadelphia public school who want to study science.

Harrington Hoists, Inc. signed a lease to occupy 96,236 square feet at 11 Industrial Rd. in Elizabethtown, PA.The 210,000-square-foot, multi-tenant warehouse building was built in 1987 and sits on more than 13 acres. The industrial facility features four loading docks, a drive-in bay, and 30-foot clear heights. www.omegare.com

Wednesday, December 12, 2012

ORS Nasco, Inc. signed a lease to occupy 73,800 square feet at 1400 AIP Dr. in Middletown, PA in Dauphin County. The 349,225-square-foot, class A industrial building was constructed in 2004 and sits on 39 acres within the Stoneridge Commerce Park. The multi-tenant warehouse building features 40 loading docks and has a clearing height of 30 feet. www.omegare.com

Dorman, a leading supplier of OEM "exclusive" automotive replacement parts, renewed its 342,000-square-foot manufacturing and headquarters lease at 3400 E. Walnut St. in Colmar, PA for an additional five years.

The 342,000-square-foot warehouse building was constructed in 1954 on 27.8 acres in the East Montgomery County Industrial submarket of Philadelphia. It features five loading docks, five drive-in bays and trailer parking. www.omegare.com

From financing to development—and everything in between—the sentiment among industrial players can be described in a single word: bullish. Brokers, developers, and lenders all used the term repeatedly in discussions about the short-and long-term prospects for industrial real estate during RealShare Industrial in Miami, Fla. on Thursday.

“The market is very bright right now,” said Ward Fitzgerald, managing principal and CEO of Exeter Property Group, who offered the keynote. “The institutional market is bullish on industrial. You should be bullish.”

Fitzgerald explained why: the fundamentals in the industrial market simply don’t exist in other real estate sectors. The office and hotel market are driven by jobs. The retail market is driven by Gross Domestic Product. Industrial is less dependent on those metrics and more impacted by population growth.

Fitzgerald also cited globalization, which spurs the movement of goods, as a boon for the industrial sector. Then there’s obsolescence. Unlike office buildings or multifamily projects that continue running strong even 100 year after they are developed, industrial properties have a shorter lifecycle and have to be redeveloped in as little as 30 years.

“Multifamily has been leading the market in returns,” Fitzgerald said. “But the industrial market is projected to have the highest returns over the next five years. Industrial is the most prominent product type among investors. Currently, some pension fund owners don’t own any industrial. Now, that is starting to change.”

The keynote was followed by the Town Hall Power Panel. Jim Dieter, an executive vice president at Cushman & Wakefield, moderated the panel with a lively tone that challenged the commercial real estate professionals to get to the bottom line. After a few minutes of what he called “happy talk,” Dieter asked the panelists to express their concerns about the industrial market.

PJ Charlton, senior vice president at KTR Capital Partners, said he still sees tenants taking their time to make decisions on new industrial space. He is pondering questions such as: “How quickly will money flow into development?” and “How quickly will markets get overbuilt?” Charlton said, “There is five times the pressure for money to get placed into industrial deals as there is demand from tenants looking for industrial space.”

Brandy Birtcher, president at Goodman Birtcher North America, has specific concerns about industrial in California. “We’re going to see resistance to building big box industrial because it doesn’t create that many jobs,” he said. “But we needs these big box industrial buildings."

Peter Shultz, executive vice president at First Industrial Realty Trust, is concerned about the wave of CMBS loans coming due in 2014 and the likelihood that the cost of capital will increase in the face of Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Where is the capital going to come from?” Shultz asked. “You better have cash on hand because you are going to need it for development projects.”

Still, Jay Cornforth, president of the East Region of Prologis, is bullish. “I see a long-term trend,” he said. “Currently, the real estate allocation is about 10%. By 2020 I expect the real estate allocation to reach 20%.”ww.omegare.com

Monday, December 10, 2012

On 1,200 acres of Philadelphia waterfront, where some of the Navy's most historic ships were built, a fleet of another sort will soon make what Anthony Bucci hopes will be a high-impact entrance.

And not just because of the noise coming from the tailpipes.

RevZilla.com L.L.C., an online motorcycle-gear retailer created five years ago by three Drexel University graduates wanting to indulge their proficiency with technology and love of bikes, will move to Philadelphia Navy Yard in February.

It will leave its 35,000-square-foot, low-profile headquarters in an old South Philadelphia toy factory on Jackson Street and bring something novel to the business campus redevelopment site along the Delaware: shopping.

RevZilla.com will rent 50,000 square feet from Liberty Property Trust - right next to Tasty Baking Co. - and create a retail store selling apparel and accessories. It will be open on Saturdays and expects to attract riders near and far who prefer to shop in person rather than via the Internet.

"The Navy Yard represents the next chapter for RevZilla," said the 32-year-old Bucci.

He and partners Nick Auger, 28, and Matt Kull, 29, foresee that chapter as one of growth for a company that has known nothing but that.

Though unwilling to be more specific, Bucci said RevZilla.com's revenue was "mid-eight figures." The company of 50 employees – holding jobs in Web creation, technology, customer service, and logistics – was "cash-flow positive in 90 days, which was shocking for us," Bucci said. "We launched in the recession."

And took advantage of that punishing economic period.

"As most of our competition was looking for a belt to tighten, we were so small we had no belt," Bucci said.

Though "there was terror," it was offset by "a mixture of naivete and pathological optimism," he said. "We bet on ourselves that we could knit the parachute on our way down."

That confidence was fed by a belief in what Bucci describes as "a secret sauce" – software written in-house. The big barrier to e-commerce entry is inadequate technology to drive the sales, accounting, and warehouse-management functions, Bucci said. His industry is particularly tough because it is highly fragmented, Bucci said.

"We work with 50 vendors, each with between one and 10 warehouses, each running a different system for order-processing and inventory," he said. RevZilla.com built what Bucci called "a black box that could talk to all their systems."

To that, it added a product line of prestigious brands culled from suppliers in the United States and Europe, and a service operation focused on saving customers time with knowledgeable staff.

Then there are the videos, produced at RevZilla.com's own studios. They blend the whimsical (bowling with helmets) with serious product reviews, such as a new riding boot from Italy.

"YouTube is our largest online community of active users," Bucci said, describing RevZilla.com's typical customer base as a rather broad group - from dirt and sport riders between the ages of 18 and 34 to older professionals astride Harley-Davidsons, BMWs, and Bucci's current make of choice, a Ducati.

Bucci said annual revenue growth had been "well north of 50 percent and sometimes in triple digits."

The company has done it without outside investors, enabled in part by austerity in the early going. The three partners - all unmarried at the time - shared a rundown loft apartment in Old City and ate a lot of pasta, Bucci said.

Their plan is not to sell the business, but to focus "on the long dollar . . . building something meaningful that is sustainable," Bucci said.

The Navy Yard move will enable the company "to triple our staffing as well as house fast-growing inventory requirements," he said.

In January, RevZilla.com opened a warehouse in Las Vegas to provide faster West Coast delivery.

Amid all his expansion talk, Bucci does worry about growing too fast. "There's always that danger you lose focus or lose a handle on things people love," he said.

And there are those other threats to e-commerce retailers, he added: "Amazon's the great white shark, and you never know what Google is going to do next."

Among those expecting RevZilla.com to survive is David Bookspan, a partner in business accelerator DreamIt Ventures, L.L.C. - and an owner of two bikes: a Harley Springer and a BMW 1200GS. He has made no investment in the company other than as a customer.

Besides the market for motorcycle accessories and apparel being "big and growing," Bookspan said it was "somewhat old school."

"The technology and sophistication that RevZilla brings to it is why they are going to thrive and grow."

Friday, December 7, 2012

CubeSmart, a self-storage company that is now located off Swedesford Road in Wayne, will construct its own headquarters here that will be a little different from a typical corporate base.

The company will split the $19 million, 86,000-square-foot building it is constructing between offices and a self-storage facility. About 46,000 square feet will be dedicated to the corporate offices and the remainder to storage.

“We wanted to have the ability, when we have shareholders or analysts visiting to have meetings and then walk them over and show them the way the business operates,” said Christopher P. Marr, president and chief investment officer.

The closest storage facilities to its current headquarters at 460 E. Swedesford Road are in Norristown or Conshohocken.

The storage space will provide other uses. It will give new employees a place to train and learn about the company and generate revenue. The space will have roughly 200 storage units.

“We also wanted the ability to be on our own and control our own destiny,” Marr said. “It made a ton of economic sense.”

D2 Solutions designed the building and E. Kahn Development Corp. is the developer.

Woodmont Properties LLC acquired 34 E. Main St. in New Kingstown, PA from SK Realty Management for $5 million, or about $28 per square foot. The single-story, 179,200-square-foot warehouse building was constructed in 1981 on 10.6 acres in the Harrisburg Area West Industrial submarket of Cumberland County. It features 20 loading docks, 24-foot clear heights, and 10 rail spots on Norfolk Southern. www.omegare.com

Saturday, December 1, 2012

by Natalie Kostelni

Tremont Realty Capital arranged a $2.3 million loan for Red Hill Estates, a mobile home park in Red Hill, Pa., that has 61 lots. The 10-year, fixed-rate loan provided for roughly 70 percent loan to value with a 4.62 percent interest rate … Communications Test Design Inc., an engineering firm that serves the communications industry, has expanded into several new markets and taken more than 700,000 square feet of mostly new space over the last 12 months. The West Chester, Pa.

Custom Manufacturing Corp., which specializes in the bending of aluminum extrusions and steel shapes, has extended its lease on 72,830 square feet at 2522 State Road in Bensalem, Pa.… Facilities Management Services of Pennsylvania relocated into 13,038 square feet on the fourth floor of 1608 Walnut St. from 1616 Walnut St. in Philadelphia. The law offices of Michael Hanamirian and Sidney Leabman renewed for some 3,605 square feet on the eighth floor …

by Natalie Kostelni

LaSalle Investment Management bought a medical office building at Ellis Preserve here for $50.5 million, or roughly $388 a square foot, which is the highest price ever paid for a suburban office property in the Philadelphia region.

The sale blew out an earlier record set in 2005 when 300 Four Falls, a 290,000-square-foot office property in West Conshohocken, traded for $100 million, or $340 a square foot.

The 130,000-square-foot building at Ellis Preserve was constructed in June 2007 for Main Line Health. The health system’s affiliate, Main Line Hospitals Inc., then signed a 15-year lease on the building. BPG Properties Ltd. of Philadelphia built the structure and was the seller in this transaction. Current demand for medical office buildings was one of the drivers leading BPG to sell the property, said Steve Spaeder, president at BPG’s affiliated BPG Development Co.

Investors have taken a liking to medical office buildings and their sales have increased by 18 percent over the last year, according to Real Capital Analytics data. In addition, the sales price has increased. During the second quarter, the average sale price was $210 a square foot and now it’s at $218 a square foot, according to Real Capital Analytics.

The property known as the Main Line Health Center at Ellis Preserve is considered the ideal in what investors are seeking these days in commercial real estate.

About Me

Joe O’Donnell has been in commercial real estate for over 15 years. His expertise is the corporate tenant/buyer representation as well as landlord for office, industrial and retail buildings. He primarily works the surrounding Montgomery, Chester and Bucks County markets.